24.04.2012 - House prices and interest rates: More on house price fundamentals

Like everything else, house prices are set by supply and demand; but clearly, the supply situation in Ireland and Spain looks completely different from that of Britain. But demand is surely not an exogenous factor.
I would suggest there is a three-stage process; more people will want to own their home if prices are rising and that will reinforce the boom; at some point, however, unless lending standards are not completely relaxed, people will be priced out of the market and will have to flat share/live with their parents, and the bubble will pop; at that stage, as prices fall, defaulting borrowers will send more supply into the market until eventually prices are affordable again...............................................Full Article: Source